At the beginning of the year, my husband and I decided that this would be the year we would replace one of our SUV cars with a minivan. We would like to have another child and there was no way a third car seat would fit in either car. This was a planned purchase and one we have been preparing for the last two years.
Two weeks ago my husband got us an AWESOME deal on a new Toyota Minivan. He found us a 2009 Sienna LE with 800 miles on it for $19,500. What a steal right? you won’t believe where he found it: on Ebay. Yes! we bought our new car online, without even looking at it or test driving it. In fact, the car was not even in this state, he had to fly to NY to get it and drive it back home to WI. I realize this is a fairly unconventional way to buy a car for most people. But just so you know, according to Bankrate.com, Ebay Motors is the largest used car seller/lister in the United States. This is not the first time we bought a car online either. Four years ago we bought his Jeep through Ebay as well. My husband is very diligent in doing all the research necessary and because of that we are confident in the purchases he makes. This was our biggest purchase online though, and of course we took care of everything to make sure we were protected.
Although we had enough money in savings to pay cash for it, I have such little confidence with the current economic situation that I didn’t feel comfortable draining our emergency savings fund for this, so we took on a car loan. But we are intent in paying this off ASAP and that’s why our financial goal for 2009 is to pay off this car loan in six months and we are going to use the Snowball Debt Pay off Method to get rid of this loan. If you haven’t heard of the Debt Snowball Method, I want to direct you to this Primer Jamie from Paid Twice wrote about it. If you have debt and would like to pay if off quickly, this is a concept many have found useful in their debt-free quest.
Our car debt numbers break down like this
$21,500 amount of car loan
plus $600 interest cost of loan over next six months
less $4000 ->We have been saving for a family car for the last two years.
less $4400 -> from tax refunds and other money owed to us
less $4500 -> from sale of my husband’s car
= $9200 amount of loan outstanding after cash contributions
Our car payment is $410 a month. Last week we refinanced our home loan and that freed an extra $150 from our budget that we can send to this loan. We are also stopping cash savings for this period of time. In total we can pay $680 a month until the car is paid off. Six monthly payments should knock down $4080 from the amount we owe. That leaves us with $5,120 that we have to come up from our income over the next six months to pay off the car loan. Here’s where the concept of snowflaking is going to pay off for us. We plan on just going on a barebones budget for the next few months, create surpluses and send any extra money we can scrape off to this loan.
This is the first time we are doing something like this. But as I told my husband, it is not a challenge if we don’t push ourselves to the limit. I am sharing this with you not to show off but to make myself accountable to this goal. When I first met my husband, I remember he would tell me that a car loan is one of those things that is always part of people’s budget. For a long time, I bought into that. I don’t anymore, we don’t anymore. By saving diligently and planning carefully you CAN break the cycle and get rid of your car payment. This is what this challenge is about: to show you that it can be done.